When it comes to fulfilling life goals, affordability is a factor that cannot be overlooked. To be able to afford the accomplishments of these goals, you need a sufficient corpus. While it might seem a good idea to save parts of your income, they will not be enough in helping you accomplish your goals. Investing and growing your wealth overtime can help you in having substantial income for the future.
If you are looking for a financial instrument that provides a safe investment opportunity, look no further than a ULIP plan. In recent times, ULIPs have been gaining popularity among investors. What makes ULIPs so attractive? Read more to find out.
What is a ULIP?
A ULIP is a life insurance plan that provides the dual benefit of investment and insurance in the same plan. This negates the requirement of purchasing a separate policy. The premium towards this plan helps in funding both the components. In ULIPs, you get to invest in equity, debt, and balanced funds. Equity and debt fund have different risk factors and different rate of returns. The investments can be made on the basis of your risk appetite and requirement.
ULIPs also provide your family with a life insurance cover. If you were to pass away during the term of the plan, your insurer will compensate them with a death benefit. They would also receive the maturity benefits once the plan matures.
Why are ULIPs so popular?
Listed below are benefits that make ULIPs popular among investors:
- Life insurance cover
As mentioned earlier, Among the two benefits you get in ULIPs is the life insurance cover. Life is full of risks and there is no predicting when an unfortunate circumstance might happen. Not everyone can handle the financial costs in the aftermath of such situations. Therefore, investing in a ULIP makes much more sense as you get the benefit for life insurance cover for your loved ones. They can use the death benefit for any immediate expenses and to maintain financial stability in your absence.
- Tax benefits
There are different tax benefits that you get to enjoy when you invest in ULIPs. Under the new tax regime, ULIPs purchased on or after 1st February 2021 have the provision of tax deduction on the annual premium payments under Section 10(10D). This deduction is on the limit of up to Rs.2.5 Lakhs. For ULIPs purchased before 1st March 2012, the annual premium that you pay for the policy is tax exempted under section 80C of the Income Tax Act with the limit being Rs.1.5 Lakhs. Similarly, the maturity benefits and the death benefit that you or your family will get once the term of the policy ends are also eligible for tax deductions under section 10(10D).
- Long-term investment benefits
ULIPs are designed in such a way that the benefits that you can enjoy grow more in the longer term. When you invest in ULIPs for longer duration, the returns accumulate more and you could get a higher pay-out once the policy matures. If you were to invest in ULIPs for a shorter duration, the returns will not be what you expect and might not help you in accomplishing your life goal. Longer-duration investments mean better performance. It helps you in correcting and regaining your investments in the long run.
- Switching option
When you invest in a ULIPs, you have the option of investing in equity funds or debt funds. Equity funds are high-risk, high-return fund options. On the other hand, debt funds are low-risk, low-to-medium return funds. In ULIPs, you have the option of switching your investments from one fund to another. So, if your risk appetite is low at a certain point of time; you can reallocate some part of your investments from equity funds to debt funds in the ULIP, meaning lower exposure to risk and consistent returns overtime.
These are just a handful of reasons as to why ULIPs are so popular among investors. You can get in touch with your insurance/financial advisor to know more this plan. To get an idea about the returns of your investment in ULIPs, use the ULIP return calculator.